Tied To Trade, Dutch Economy Falls With The Tide

The flower auction house in Aalsmeer, the Netherlands, is one of the largest in the world — and a part of the country's strong export base. As Europe's debt crisis continues, the Dutch economy is feeling the effects of being heavily reliant on world trade.

Pan Zhi
/ Xinhua /Landov

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Originally published on December 21, 2011 6:14 pm

The debt crisis in Europe got under way in small, heavily indebted countries like Greece and Ireland, but these days it's also being felt in the wealthy heartland.

The Dutch government says the country probably slipped into a recession at the end of this year, and like other countries, it's having to consider budget cuts.

With a population of just 16 million, the Netherlands is one of the most vital economies in the West. It has low unemployment, a high savings rate and a strong export base, in addition to world-class companies like Phillips and Unilever. But these days, the mood in the country is gloomy.

At rush hour on a weekday in the Amsterdam central train station, it isn't hard to find people who are worried about losing their jobs — like Ada Beukelman.

"Now many companies are letting go of people because there is no employment anymore, because there's no finance, and I think of the number of unemployed people is increasing," Beukelman says. "I've seen that in my own company."

Or another man, Peter, who didn't want his last name used because he works for the government and doesn't want to jeopardize his job.

"People are waiting for what's coming," he says. "It's difficult to buy new houses, to get new jobs, so it's affecting everyone."

World Trade Worries

Unemployment was very much on the mind of Dutch Prime Minister Mark Rutte last month when he paid a call on President Obama at the White House to discuss a familiar subject.

"I came to the United States basically to discuss three issues: jobs, jobs and jobs," Rutte said to Obama. "These are the main issues at the moment."

Simply put, the Netherlands is feeling the brunt of the debt troubles plaguing Europe.

"The economic forecasts are deteriorating a lot, and this has everything to do with the euro crisis," says Bas Jacobs, an economist at Erasmus University Rotterdam.

Jacobs says most of Dutch trade is with other European countries, and as they head into a recession, the Netherlands will follow.

"The Dutch economy is a small economy and it's extremely reliant on world trade. We cannot, like the U.S., largely control our own economic destiny. We are going up and down with the tides in world trade," Jacobs says.

The unemployment rate is still just 5.8 percent, but it's rising fast. With the economy slowing, Holland's small budget deficit is widening and Rutte's government is pushing through tax hikes and cuts in areas like education and transportation.

Fear Of A Housing Crisis

There's been talk of reducing the lavish tax deductions that the government allows on mortgage interest. The Dutch are a thrifty people, but they have amassed some of the highest levels of mortgage debt in Europe.

Hans de la Porte, a spokesman for the homeowners' lobby, concedes that the deductions encouraged people to buy houses they couldn't afford. "We've had this belief that housing prices can only go up. We've [forgotten] that anything that goes up can go down," he says.

That's a big risk for the banks, he adds. They're saddled with big mortgage debts that could sour if the recession lasts too long — a problem that should sound all too familiar to Americans. But de la Porte says cutting the deduction now would be the wrong thing to do.

"If you do away with it altogether at once, then you have the biggest economic crisis and crash that you can ever imagine," he says.

Mortgage interest isn't the only issue on the table. Some politicians want to cut the country's generous foreign aid budget. One government official has proposed scaling back unemployment benefits for people who refuse to move for a job.

But for Bas Jacobs it's unclear whether any of this will be enough because the future is so murky. "Everything is now critically determined by the question [of] whether our leaders are able to devise plans to stop this euro crisis or not, and things are rather scary at the moment, I must admit," Jacobs says.

The Netherlands is a country that consistently punches above its weight economically. But the truth is that as the debt crisis drags on, its fate is very much outside its hands.

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In Europe, the financial crisis was first felt in small, heavily indebted countries - countries such as Greece and Ireland. But these days, wealthy countries are feeling more pain, and that includes the Netherlands. The Dutch government says the country has probably slipped into a recession. NPR's Jim Zarroli has our story.

JIM ZARROLI, BYLINE: With a population of just 16 and a half million people, the Netherlands is one of the most vital economies in the West. It has low unemployment, a high savings rate and a strong export base. It has world class companies like Phillips and Unilever. But these days, the mood in the country is gloomy.

At the Amsterdam Centraal Train Station at a rush hour on a weekday, it isn't hard to find people who are worried about losing their jobs - people like Ada Beukelman.

ADA BEUKELMAN: Now, many companies are letting go of people because there is no employment anymore, because there's no finance. And I think the number of unemployed people is increasing. I've seen that in my own company.

ZARROLI: Or this man named Peter who didn't want his last name used because he works for the government and doesn't want to jeopardize his job.

PETER: People, they are waiting for what's coming. It's difficult to buy new houses, to get new jobs, so it is affecting everyone.

ZARROLI: Unemployment was very much on the mind of Dutch Prime Minister Mark Rutte last month when he paid a call on President Obama at the White House.

PRIME MINISTER MARK RUTTE: I came to the United States basically to discuss three issues: jobs, jobs and jobs.

PRESIDENT BARACK OBAMA: Those are good issues to discuss.

These are the main issues at the moment.

ZARROLI: Simply put, the Netherlands is feeling the brunt of the debt troubles plaguing Europe.

The economic forecasts are deteriorating a lot, and this has everything to do with the euro crisis.

Economist Bas Jacobs of Erasmus University Rotterdam says most of Dutch trade is with other European countries. And as they head into a recession, the Netherlands will follow.

BAS JACOBS: The Dutch economy is a small economy, and it's extremely reliant on world trade. We cannot, like the U.S., largely control our own economic destiny. We are going up and down with the tides in world trade.

ZARROLI: The unemployment rate is still just 5.8 percent, but it's rising fast. With the economy slowing, the Netherlands' small budget deficit is widening, and Rutte's government is pushing through tax hikes and cuts in areas like education and transportation.

There's been talk of reducing the lavish tax deductions that the government allows on mortgage interest. The Dutch are a thrifty people, but they have amassed some of the highest levels of mortgage debt in Europe.

Hans de la Porte, a spokesman for the homeowners' lobby, concedes that the deductions have encouraged people to buy houses they couldn't afford.

HANS DE LA PORTE: We've had this belief that housing prices can only go up. We forgot that anything that goes up can go down.

ZARROLI: De la Porte says that's a big risk for the banks. They're saddled with high mortgage debt that could sour if the recession lasts too long, a problem that should sound all too familiar to Americans. But de la Porte says cutting the deduction now would be the wrong thing to do.

PORTE: If you do away with it altogether at once, then you have the biggest economic crisis and crash that you can ever imagine.

ZARROLI: Some politicians also want to cut the country's generous foreign aid budget. Closer to home, one government official has proposed scaling back unemployment benefits for people who refuse to move for a job. But Bas Jacobs says it's not clear whether any of this will be enough because the future is so murky.

JACOBS: Everything is now critically determined by the question whether our leaders are able to devise plans to stop this euro crisis or not. And things are rather scary at the moment, I must admit.

ZARROLI: The Netherlands is a country that consistently punches above its weight economically. But the truth is that, as this debt crisis drags on, its fate is very much outside its hands. Jim Zarroli, NPR News. Transcript provided by NPR, Copyright NPR.